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Swiss economy stagnates in third quarter

Switzerland's economy stagnated in the third quarter, missing analysts' expectations for modest growth, as a strong franc continued to hurt Swiss companies.

PHOTO: BLOOMBERG

[ZURICH] Switzerland's economy stagnated in the third quarter, missing analysts' expectations for modest growth, as a strong franc continued to hurt Swiss companies.

Third-quarter gross domestic product was flat compared with the prior three months, when the economy grew 0.2 per cent. Year-on-year, growth fell to 0.8 per cent compared with a revised 0.9 per cent in the second quarter.

Economists had forecast growth of 0.2 per cent on a quarterly basis and 0.9 per cent on a year-on-year basis.

The economy has been kept in check by a surge in the value of the Swiss franc against the euro since January, when the Swiss National Bank (SNB) abandoned its cap of 1.20 francs to the euro. The franc remains about 10 per cent stronger against the euro than it was 11 months ago. "GDP growth was held back by the weak performance of the energy sector, the construction sector, the financial sector as well as trading," the Swiss Department of Economic Affairs said in a statement. Growth in healthcare and social work activities, as well as insurance services and manufacturing, helped to offset declines, it said.

The SNB's policy of currency intervention and negative interest rates has helped curb the value of the franc, which has stabilised around 1.08 per euro. It had gained to 0.86 per euro on Jan. 15.

But analysts have questioned the SNB's ability to keep a lid on franc. The European Central Bank will give an update on its policy on Thursday, which may include expanding its quantitative easing programme and cutting interest rates. Both would tend to weaken the euro.

The third quarter's stagnation follows unexpected growth in the second quarter, which meant Switzerland narrowly skirted a recession as exporters weathered the strong franc better than some had expected.

In September, the Swiss government upped its economic growth forecast for 2015 to 0.9 per cent but cautioned that a continued recovery in the euro zone was crucial to the country's prospects. It estimated the economy would grow 1.5 per cent in 2016.